GuruFocus had the pleasure of hosting a presentation with Ben Cook. Cook is a portfolio manager and member of the Investment Committee with BP Capital Fund Advisors (Trades, Portfolio) LLC, which serves as the subadvisor to the Hennessy BP Funds. He has managed the Hennessy BP Midstream Fund since 2017 and the Hennessy BP Energy Fund since 2019.
Prior to joining BP Capital, Ben spent many years investing in oil and gas markets as a portfolio manager with Mariner Investment Group, A.G. Hill Partners and Opsis Capital Management, as a senior analyst with Carlson Capital and as an equity research analyst with Raymond James.
Cook received a Bachelor of Arts in economics from Johns Hopkins University and an MBA in finance from the University of Texas at Austin. He is a CFA charter holder and member of the Chartered Financial Analyst Institute.
Watch the full presentation here:
Key takeaways
Cook kicked off his presentation with a brief history of the firm and its origin with T. Boone Pickens. He continued to explain that the firm takes a singular focus on energy thanks to a team that has wealth of experience in both the private and public energy markets. BP’s current size allows for it to be nimble and quickly respond to market condition changes.
The firm’s strategy takes a long-only approach based upon fundamental analysis to create a portfolio of approximately 40 positions that are actively managed. Its current investable universe covers traditional and renewable energy value chains and is inclusive of energy end users.
Looking to the future, Cook believes that energy demand will continue to rise, but the primary fuel mix will shift toward renewable fuels and natural gas. This rise in demand will be driven by both global population growth and a rise in prosperity around the world. Renewables are predicted to grow at the fastest rate, while coal usage will likely decline through the next decade.
The demand for energy as the fuel mix shifts will be driven by multiple factors according to Cook, which complicates the investment process. In many cases, there is strong growth seen by the renewable energy companies, but their valuation simply does not allow for safe investments to be made.
Including end users within the investable universe allows the team to expand their potential investment opportunities and further capitalize on their knowledge base. Cook continued to explain that there are several categories that they lump different end users into. He looked at the impact of China’s crack down on coal as an example of relative cost beneficiaries to highlight one of these categories.
From there, Cook broke down the firm’s investment process into a step-by-step guide to show how they focus on fundamentals to seek good returns at low risk levels. The team uses several themes they have found in their energy transition strategy that helps guide the initial step. Once potential investments are identified, the team moves into their valuation and implementation steps. The process finishes with monitoring and assessing the investment to make any needed adjustments or to maintain their sell discipline.
Stocks
Cook then moved into several examples to highlight the types of investments that can be found by their strategy. The first company he showed was Comstock Resources Inc. (CRK, Financial). He explained that growing global natural gas demand and the company’s operational location have given it strong advantages. As improving price realizations occur, he believes the company will be able to generate surplus free cash flow.
The second company Cook used as an example was Freeport-McMoRan Inc. (FCX, Financial). The company offers metals that are critical to the expansion of renewable power and the widespread growth of electric mobility vehicles. Overall, copper pricing should maintain good visibility due to a lack of short-term solutions to capacity, which makes it more predictable than other energy investments.
Questions
One of the first questions Cook answered after his presentation asked him to explain some of his favorite investments in the renewable energy sphere. He explained that he believes wind and solar are going to be the two major players driving renewable adoption moving into the future.
He explained that both solar producers and companies making wind energy componentry have been found through their process as potential good investments. He continued to hit on materials producers as being key to the expansion of the renewable energy sector and that there will likely be some solid investments cropping up as renewable energy gains market share.
Another question asked Cook about his views on deep-water drilling. In short, the team keeps an eye on all aspects of the traditional energy sector to keep up to date and maintain their knowledge.
He continued that they had seen certain pockets of success with deep-water drilling around the globe. Overall, he believes that due to the current market state, many companies have moved away from exploration to reduce their volatility risks. As these companies begin to settle back into their usual patterns, they will likely revamp their efforts at exploration and things like deep-water drilling could prove profitable for investors.
